Towards the end of last year, the government announced a “Brexit bonfire” which would have meant that the majority of retained EU law would automatically expire on 31 December 2023 unless transferred into UK law. On 10 May 2023, the government announced a reversal of its approach so that EU legislation will instead remain binding in the UK unless expressly repealed. Here, we look at the first set of proposed changes addressing employment law announced in the government’s recent policy paper “Smarter Regulation to Grow the Economy”.
- Limiting the duration of non-compete restrictive covenants
What is the current position?
It is very common for employment contracts to include restrictive covenants (also known as post-termination restrictions) which, on termination of the employee’s employment, restrict them from competing with their former employer (by working for a competitor or establishing a competing business themselves), or from soliciting the employer’s business, or its employees. In order for restrictive covenants to be enforceable, they must go no further than is necessary to protect the employer’s legitimate business interest. Commonly, a non-compete restrictive covenant will be for a duration of three or six months from the end of employment (often reduced by any period spent on garden leave) but, with very senior employees, a 12-month non-compete clause can sometimes be reasonable.
What is the change?
The government proposes to limit the duration of non-compete clauses to a maximum of three months. There is no information about whether this would have a retrospective effect in relation to existing contracts. The stated rationale for the change is that restrictive covenants are included as a default in too many employment contracts; they inhibit individuals from searching for better paying roles; and, they limit the ability of businesses to compete and innovate.
What are the consequences?
Whilst non-compete clauses should always be tailored according to the employee’s role and not be excessive in either scope or duration, they often play an important role in protecting an employer’s business, particularly when senior individuals with strong client relationships or valuable technical knowledge leave. On the other hand, the proposed change should enable employers to hire quality candidates much sooner and not have to worry as much about the possibility of legal proceedings against them for inducing a breach of contract - that is, encouraging the candidate to break their non-compete obligation.
The government has said that it intends to legislate when parliamentary time allows. However, given these changes will be introduced, employers should begin reviewing standard contract clauses relating to garden leave, notice periods, confidentiality, and post-termination restrictions.
- Rolled up holiday pay and record keeping
What is the current position?
The Working Time Regulations 1998 (WTR), which are derived from retained EU legislation, currently require businesses to keep adequate records of working hours to show that the 48-hour limit on the working week and limits on night work are complied with.
What is the change?
The government proposes to:
- Remove the requirement for working hour records to be kept.
- Permit “rolled-up” holiday pay - that is, allow employers to add an element on top of the hourly rate of pay rather than require them to give paid holiday. Under EU case law, rolled-up holiday pay is unlawful because holiday pay should be paid for the time that annual leave is actually taken. However, to relax these laws (particularly for casual workers or those doing variable hours), the government intends to legislate so that employers can lawfully include an amount in an employee’s overall pay to reflect pay the employee would have earned during their holiday entitlement.
- Merge the two separate leave entitlements under Regulations 13 (entitlement to four weeks’ holiday) and 13A (“additional” entitlement to 1.6 weeks’ holiday) of the WTR.
What are the consequences?
The removal of the record-keeping requirement may lighten the administrative burden on businesses but could also lead to excessive working hours or the exploitation of workers. In relation to statutory minimum holiday, the entitlement will still be 28 days but the proposed changes could have consequences in relation to whether elements such as commission, bonuses and overtime should be included in relation to the “additional” 1.6 weeks of annual leave (they currently apply only in respect of the first four weeks of statutory leave). There may also be repercussions on how much annual leave can be carried over (currently limited to 1.6 weeks, save in specific circumstances e.g. sickness or family leave).
- Information and consultation requirements in relation to a TUPE transfer
What is the current position?
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protect employees when the business for which they work transfers to a new owner, or when a service transfers to a new provider. Currently, an employer is required to inform and, if appropriate, consult with either representatives of a recognised trade union or elected representatives of the employees unless the micro-business exemption applies. That exemption means that employees can be consulted directly if the business has fewer than 10 employees.
What is the change?
The government proposes to permit businesses with fewer than 50 employees, or where the transfer affects less than 10 employees, to consult with employees directly.
What are the consequences?
Businesses that meet the requirements above will not need to go through an election process which will save time and costs.
How 3CS can help
The government is currently consulting on the proposed reforms to the Working Time Regulations, holiday pay, and TUPE with the consultation due to close on 7 July 2023. We are ready to support and advise your business in respect of these wide-ranging changes. Please get in touch with your usual 3CS contact if you require any further information.
